Chevron case — critically important guidance on the “old” and “new” transfer pricing laws
01 Dec 15 |
CCH TAX WEEK
Issue: Issue 44, 6 Nov 2015
Pages: pp 1-7
The much anticipated decision in Chevron Australia Holdings Pty Ltd v Commissioner of Taxation (No 4) was handed down on 23 October 2015. At the heart of the case was a related party loan (Credit Facility Agreement) between a US subsidiary and its Australian parent, which was ultimately owned by Chevron Corporation (CVX), a US company listed on the New York Stock Exchange.
The decision involved the consideration of:
- Transfer pricing rules under the now superseded Div 13 of Income Tax Assessment Act 1936 (ITAA 1936).
- Transfer pricing rules under Subdiv 815-A of Income Tax Assessment Act 1997 (ITAA 1997) which were introduced with “retrospective” application in 2012.
- Issuing alternative assessments which relied upon alternative transfer pricing provisions.
- The status of articles in double tax agreements as separate and independent powers of tax or allocation of tax rights.
- The constitutional validity of enacting Subdiv 815-A with retrospective application.
The Chevron decision is very much based on its special facts, but it provides much precedential guidance on key transfer pricing issues, particularly for cross-border financing arrangements. We would expect the decision to be appealed given the significant amounts involved (approximately $270m including penalties and interest) and the challenges of benchmarking cross-border related party loans.
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Matthew Cridland CTA is a leading tax lawyer who is regularly sought out for comment on indirect tax issues. A partner at K&L Gates, Matthew has 20 years' experience with an exclusive focus on indirect taxes including value-added tax (VAT / GST), stamp duty, land tax, payroll tax, wine equalisation tax (WET), luxury car tax (LCT), customs duty and excise. Matthew provides both transaction and dispute resolution support to clients navigating complex and often sensitive issues, including acting on litigation matters. His priority is to build a deep understanding of each client's business and objectives to inform the advice he provides and the legal solutions he helps implement. He works with organisations spanning diverse industries and sectors and has a particular focus on real estate, infrastructure and financial services. Matthew is a member of the Indirect Tax Committees of the Property Council of Australia and the Financial Services Council.
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Jock McCormack, DLA Piper, is a leading Sydney-based international taxation lawyer with specific expertise in income tax and more than 30 years experience managing complex tax matters. Jock's major areas of expertise include debt and equity structuring, acquisitions/mergers/divestments, international tax including transfer pricing, capital gains tax and major projects taxation issues. Jock also advises various major corporations on ATO tax audits, tax strategy reviews, litigation and related issues including managing, negotiating and settling challenging and contentious tax issues and reviews.
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James Newnham, CTA is a Partner in DLA Piper's Tax Team with over 16 years' experience consulting to leading Australian companies and multinational groups. He provides practical direct tax advice with consideration to his clients specific business needs. James' tax structuring experience stems from advising on various transactions including mergers, demergers, capital restructures, IPOs, private equity acquisitions, share buy-backs, and cross-border expansions. He works with emerging and mature technology clients who have specific industry based tax issues. His areas of experience include drafting the tax aspects of legal documents, tax consolidation, international tax, capital gains tax, the debt/equity rules, debt forgiveness rules, and the employee share schemes.
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